1. Field of the Invention
The present invention relates to a manual or computer-implemented method for appraising real estate. More particularly, the present invention relates to a computer-implemented method for accurately appraising real estate based upon a uniform scale which measures the desirability of the real estate to buyers and sellers.
2. Description of the Related Art
Property owners, prospective property purchasers, investors, insurance companies and lending institutions heavily rely upon the current value of a property to enact normal business operations. For real estate, the assessment of value, or appraisal, is typically done by a real estate appraiser. Real estate appraisers commonly base their judgment on any number of factors, such as the condition of the property, neighborhood reputation, and other considerations.
One common approach used to appraise real estate is called the Market Data Approach (MDA). This approach is an appraisal technique in which the market value estimate is based upon prices paid in actual market transactions and current listings. The actual sales prices operate to fix the lower limit of value in a static or advancing market, or as an upper limit in a declining market. The current listings, in contrast, set an upper limit in both advancing and declining markets. The MDA involves the process of correlating similar properties recently sold to determine the value of a subject property.
Quite notably then, one of the most important considerations in appraising real estate is the price of real estate of like design and size that have recently been sold in the same or a similar neighborhood as the "subject" property. These properties are referred to as "comparable" properties and are heavily relied upon by appraisers. For clarity then, the term "subject property" refers to a property under investigation and for which an appraisal value is to be determined. The term "comparable property", on the other hand, refers to a property, other than the subject property, that is used to assist in appraising the subject property.
In the market or sales comparison approach, the appraiser arrives at an indication of value by comparing the subject property directly with each selected comparable competitive property recently sold. The appraiser compares each of the comparable property's important attributes with the corresponding ones of the property being appraised, under the general distinctions of time, location, and physical characteristics considering all dissimilarities in terms of their probable effect upon the sale price. If a significant item in the comparable property is superior to, or more favorable than, a subject property a minus (-) dollar adjustment is made, thus reducing the indicated value of the subject; if a significant item in the comparable property is inferior to, or less favorable than, the subject property, a plus (+) dollar adjustment is made, thus increasing the value of the subject.
The drawback in relying on recent sales of comparable properties, however, is that the market or sales price merely indicates the price paid for a property. Quite significantly, however, the market price alone does not reflect the conditions existing at the time of the sale, or the reasons a buyer had in purchasing the property.
Hence, the accuracy and reliability of appraisal techniques that rely on sales price, such as the MDA system, is highly dependent upon the degree of comparability of each property with the subject property, the time at which the sale was made, the accuracy of the sale data, and the absence of unusual conditions affecting the sale, as well as other potentially influencing factors. Appraisers try and select comparable properties that have the most similarity with the subject property.
However, it would be extremely time consuming and inefficient for the appraiser to inspect each comparable property and make an explicit determination as to just how similar a comparable property is to the particular subject property under investigation. This is especially true where multiple comparable properties are involved.
In addition, an appraiser would need to re-analyze the sale value of a comparable property for each subject property being investigated. Thus, if a comparable sale is used with 10 different subject properties, then 10 separate direct comparisons of the computer sale would have to be made. Consequently, appraisers do not normally investigate comparable properties in order to determine just how relevant the sale price is to the subject property.
Nonetheless, appraisers attempt to base an appraisal on the price a typical buyer and a typical seller would agree upon as a fair value for the property. Clearly then, one drawback of these prior appraisal systems is that the factors used to appraise the property are subjective in nature. Thus, there will necessarily be a disparity in appraisal values amongst appraisers having different skill levels and biases.
Recently, appraisers have been making use of computer-generated models to facilitate the valuation of a subject property. One common computer-implemented system is referred to as Artificial Intelligence or just AI. The AI system obtains sales data from a national database and generally provides an analysis of public records data, recent sales, and other proprietary information of real estate within the zip code of the subject property.
Though the AI system is efficient time-wise, the computer system in general does not take into consideration an inspection of the subject property, or the opinion of an appraiser. Rather, the generated appraisal value is based strictly upon property information such as number of rooms, year constructed, and square footage. In addition, without objective data gathered on-site, the AI system increasingly relies on past predictions to generate the next series of predictions, so that appraisals become progressively more inaccurate.
Consequently, the neighborhood, upgrades, view, condition, amenities, and other important factors, are not worked into the appraised real estate value. Hence, the current AI system is generally inconclusive and unreliable, especially absent an inspection of the subject or comparable properties. Accordingly, the AI system only has a limited value where the subject property is in a substantially homogeneous location. Hence, a subject property that is in very good condition will tend to be under-valued. Likewise, properties that are in need of work or have other difficulties, such as limited functional use, will tend to be over-valued.
A computer-implemented real estate appraisal system is also shown in U.S. Pat. No. 5,361,201 to Jost, et al. (herein, Jost). In Jost, the computer is provided with property data describing the subject property and the area in which the subject property is located. Jost uses a neural-network approach to generate a report containing an appraised value for the subject property based upon the property data. Jost does not, however, use objective data gathered on-site or otherwise adjust the prices of comparable properties in appraising a subject property.
Accordingly, the prior appraisal systems and methods simply provide a prioritized rank or ordinal scale of various comparable properties in relation to the subject property. That is, the appraiser may indicate that one comparable property is more valuable than another comparable property or the subject property. However, this type of ranking does not indicate how much better one property is than another property. That is, there is no comparative valuation for the comparable properties with the subject property.
Another computer-implemented method for determining comparative values of comparable properties is shown in U.S. Pat. No. 5,414,621 to Hough. Hough determines values of comparable properties based on an assessment of percentages and sales of the comparable properties, and relying primarily on property tax rates of the respective properties. The derived comparable property values are then used to determine a value for a subject property.
As with other traditional appraisal methods, however, Hough does not consider the values of the buyers or sellers in appraising either the comparable properties or the subject property. This deficiency is significant, especially when one considers that the price of the property is highly dependent upon the demands of the prospective purchaser.